In more than 40 episodes spanning 75 years, equity and bond fund investors have defied predictions that they would panic and spark crises. Yet banking regulators won’t let go of their “run” scenario. Why?

ix years after Muammar Gaddafi’s death, his regime’s frozen funds in Brussels are generating tens of millions of euros in interest for mystery beneficiaries, despite international sanctions.

A POLITICO investigation into €16 billion of the Libyan dictator’s assets held in Belgium discovered big, regular outflows of stock dividends, bond income and interest payments. Legal documents, bank statements, emails and dozens of interviews point to a loophole in the sanctions regime.

While Gaddafi’s wealth is meant to be held in trust for the Libyan people until the war-shattered country stabilizes, interest payments flowed from frozen accounts in Brussels to bank accounts in Luxembourg and Bahrain over recent years, documents reviewed by POLITICO show. Belgium’s finance ministry says such payments are legal.

The interest goes to accounts belonging to the Libyan Investment Authority (LIA), the country’s sovereign fund, which was founded in 2006 to invest Gaddafi’s oil wealth. LIA now lies at the heart of a turf war between rival claimants in Libya, and it’s not clear who runs the agency or gets any of the funds sent to its accounts.

The Libyan Investment Authority’s funds are locked in at least four bank accounts managed by Euroclear, a financial institution headquartered in Brussels.

Following a NATO-led intervention that toppled Gaddafi, who died in October 2011, civil war has reduced Libya to a hydra-headed set of competing administrations governed by rival strongmen, in an environment still destabilized by Islamist militants.

Those divisions are mirrored in the battle to control LIA. Two groups purport to be the official government: a U.N.-backed one in Tripoli, and another in the eastern port of Tobruk, which is backed by the army. Both factions have appointed bosses of the sovereign fund. To complicate matters further, there are two competing chairmen in Tripoli, who are locked in disputes over who is the legitimate chief.

POLITICO contacted the investment authority’s lawyers, consultants, a former head of LIA and current claimants to be its chairman. None was able to specify which, if any, of the rival claimants to LIA was able to access the millions in interest payments from Belgium.

International powerhouse

s anti-regime protests that started in Tunisia spread to Libya, Egypt and Syria — in a series of political upheavals across the region that came to be known as the Arab Spring — countries across the world, including the U.S. and the EU, froze the fund’s assets in accordance with a U.N. resolution in March 2011.

The U.N. sanctions targeted assets of the Gaddafi regime, including about $67 billion of LIA’s assets, primarily invested with banks and fund managers across Europe and North America. An earlier package of measures in February had introduced an arms embargo and travel bans against prominent members of the regime.

In Europe, national governments are responsible for enforcing these sanctions. The 28 EU governments held a meeting in October 2011 that interpreted the sanctions as being applicable only to the original frozen assets, not the interest earned after September 2011.

Creditors across Europe ranging from Prince Laurent of Belgium, the king’s brother, to an Italian dairy company have unsuccessfully attempted to wrest back some of the money they say is owed to them by the Libyan state from LIA coffers.

Under Gaddafi’s rule, LIA (and its LAFICO subsidiary) had become a formidable international player and purchased assets in strategic companies, especially in Italy and Britain, including in the carmaker Fiat, the soccer club Juventus, Royal Bank of Scotland, and Pearson, the then publisher of the Financial Times.

The Libyan Investment Authority’s funds are locked in at least four bank accounts managed by Euroclear, a financial institution headquartered in Brussels.

According to copies of Euroclear statements from 2013 seen by POLITICO, the frozen funds invested in shares before 2011 had risen in value to €14 billion. Those stocks included holdings in big Italian companies such as the oil giant ENI, the bank Unicredit and the engineering company Finmeccanica, among others. A further €2 billion was held in a current account, according to the statement reviewed by POLITICO that was dated November 29, 2013.

Interest windfalls

t is unclear whether other EU countries are allowing the interest to flow out as Belgium does, but officials linked to LIA said that interest flows from the fund’s assets around the world were frequent, and large.

Mohsen Derregia, who was appointed chief executive of LIA in 2012 and lasted a year in the post, confirmed in a telephone interview that interest flowed from Gaddafi’s frozen assets during his time at the helm. He said the fund received about $630 million between April 2012 and April 2013, from the combined (supposedly frozen) assets around the world. He said that he could not specify how many of those millions came from Belgium.

He was fired from his post by the government in Tripoli of then Prime Minister Ali Zeidan in the spring of 2013, he said.

Abdul Magid Breish, who served as chairman of LIA from mid-2013 until June 2017, and still claims to be the legitimate head, also said that there was nothing illegal about interest payments. Breish is now locked in legal battles to assert his claim to LIA after the Government of National Accord in Tripoli appointed its own chairman, Ali Hassan Mahmoud, in 2016.

While little has been resolved between the factions and violence still persists between militia on the ground in Libya, what is clear is that interest from LIA’s billions in Belgium is going to someone.

Belgium’s finance ministry insists that the interest payments are legal, and that no special authorization had to be given.

In an email exchange from the fall of 2013 between a Euroclear employee and the Belgian finance ministry, a Euroclear official writes that funds from these accounts had been “released” to an HSBC account in Luxembourg belonging to LIA and to several other LIA accounts at the Arab Banking Corporation, a bank headquartered in Bahrain, whose main shareholder is the Libyan Central Bank.

As part of that exchange, Philippe Cloetens, a compliance official at Euroclear, informed Belgian officials that interest and dividends worth €28 million covering a period of September 2011 to October 2013 had been credited to the HSBC account, and that funds would continue to be “released.” His email is dated December 6, 2013.

“You should note that starting in December 2013, the interest received by this account will be released once a month, as is already the case for the three other accounts blocked,” Cloetens wrote in the email.

Another email from Cloetens to a Belgian finance ministry official dated October 24, 2012 said that interest payments were “released” to the Bahrain accounts, but the sums were not given.

Cloetens referred all questions to Euroclear’s spokesperson, who said: “Euroclear’s policy is to respect and to be in full compliance with all applicable laws and regulations.”

HSBC and the Arab Banking Corporation in Bahrain declined to comment.

Belgian green light

elgium’s finance ministry insists that the interest payments are legal, and that no special authorization had to be given.

Georges Gilkinet, a lawmaker and a member of the Belgian parliament’s finance and budget oversight committee, called on Finance Minister Johan Van Overtveldt to explain the interest payments during a session of the assembly on September 26, 2017.

In a response during that session, Van Overtveldt justified the payments by saying they were in accordance with an “interpretation” of the sanctions’ rules by RELEX, an expert group at the Council of the EU composed of diplomats from member countries.

Muammar Gaddafi, the former leader of Libya in 2010 | Ernesto Ruscio/Getty Images

Van Overtveldt did not respond to Gilkinet’s questions about whether the interest was paid to Belgian companies, owners of the frozen assets or the Libyan state.

Alexandre De Geest, treasury chief at Belgium’s finance ministry, confirmed to POLITICO that the country allowed earnings from frozen Libyan assets to be paid based on the RELEX decision.

“From 16 September 2011, interests or any other earnings related to the frozen funds of the four entities [listed in sanctions], such as dividends on shares, are not frozen. This conclusion was agreed upon during the RELEX meeting of 20 October 2011 by the European External Action Service and the legal service of the Council,” De Geest wrote in an email.

He added that providing further information on the frozen assets was “prohibited” under EU law. A finance ministry spokesman also did not reply to a question on whether he knew who was claiming the money in the LIA accounts.

Despite LIA’s prominence on the international stage, it is difficult to determine who can access its various accounts.

A spokeswoman for the Council legal service agreed with the Belgian interpretation of the law — saying that the RELEX decision limited the freeze only to assets before September 16, 2011.

Didier Reynders served as finance minister at the time of the RELEX decision but a spokesman for him said that he had “no information” on the case.

De Geest said that the RELEX ruling meant that Belgium’s finance ministry did not need to grant any special license or authorization to green light interest payments from Gaddafi’s assets.

Final destination

espite LIA’s prominence on the international stage, it is difficult to determine who can access its various accounts.

In the past few years, LIA has engaged in high-profile court battles with Goldman Sachs and Société Générale over investments and trades hailing from the Gaddafi era.

The London-based lawyers working for LIA in these cases declined to respond when approached by POLITICO to ask which group was currently controlling LIA or paying fees for court cases.

Derregia, who taught at Britain’s University of Nottingham business school before heading LIA, insists that none of the millions of euros of interest and dividends ever reached the Libyan people. “So far these funds have been spent on legal cases and on legal feuds within the LIA, nothing went to the people. With all that money we could have launched education and health projects for all the Libyans,” he said. “But politics, not economics or the people, are what they care about.”

“Euroclear is transacting transactions on behalf of the custodian — be it ABC Bahrain, or HSBC Luxembourg" — Abdul Magid Breish, former chairman of LIA

Enyo, a London-based law firm that represented the LIA in its proceedings against Goldman Sachs and Société Générale, referred all questions on LIA to an advisory company, Osborne & Partners. Osborne & Partners declined to “provide guidance on LIA financial or operational matters.”

LIA lost the case against Goldman in 2016, in which it claimed unsuccessfully that it had been misled into risky derivative trades by the U.S. bank. It was more successful in May 2017, when it won a €963 million settlement with Société Générale, in which LIA complained about the way the French bank handled five transactions between 2007 and 2009.

While several claimants are still battling to be recognized as the rightful head of LIA, they have agreed to create a special, temporary legal entity to “receive and manage” LIA’s affairs in the Goldman Sachs and Société Générale cases, run through BDO LLP, an accountancy and advisory firm. This “Receiver and Manager,” as recognized under British law, is intended to handle LIA’s goods and money until the disputes between the rivals are settled.

BDO LLP declined to comment.

Breish, who was forced aside as chairman last summer, told POLITICO that some of the money won in the Société Générale case was intended for litigation costs.

Chasing the money

n an interview with POLITICO, Breish said rivalries over the control of LIA created confusion in sorting out where the final payments from Euroclear transactions ended up.

He said he did not receive any such payments in his time in charge, but reckoned that other rivals to the LIA title might have done so.

“Euroclear is transacting transactions on behalf of the custodian — be it ABC Bahrain, or HSBC Luxembourg ... If a dividend or interest coupon is paid, it comes through Euroclear to be settled and then it is credited to the account of the custodian, then that custodian has already accounts in the name of LIA. And that custodian will then credit these amounts. When all of these procedures are finished then the problem starts,” Breish said.

Little has been resolved between the factions and violence still persists between militia on the ground in Libya | Abdullah Doma/AFP via Getty Images

“If somebody approached, for instance, ABC Bahrain whether it is the LIA in Tripoli or LIA in Tobruk or a claimant who says: ‘I am the chairman of the LIA’ and asks them to transfer money coming from dividends on an account in a third bank ... or sends a telex requesting a transfer, the custodian should say that there is an authority problem.”

However, Breish said that “there may have been some custodians who may have honored requests from this LIA or that LIA.”

POLITICO attempted to contact Mahmoud’s LIA operations in Tripoli and Malta by telephone and email, but received no reply. Joanne Benecke, an administrator for the Maltese headquarters of the LIA, declined to comment and said that the Valletta office served simply as a “LIA advisory.” She declined to provide further details about the management.

The administration in Tobruk has nominated Ali Shamekh as its chief executive of LIA. Emails and telephone calls to him, his predecessor and the regional government, the Libyan House of Representatives, in eastern Libya all went unanswered.

VIEW THE DOCUMENTS

On interest payments: E-mail exchange between the Belgian finance ministry and Euroclear explaining that interest payments were released to LIA accounts at the Arab Banking Corporation in Bahrain.

Euroclear statement: Excerpt from a 2013 Euroclear statement detailing the frozen funds belonging to the LIA. Euroclear is informing Belgian officials that interest and dividends worth €28 million (covering a period of September 2011 to October 2013) have been credited to an HSBC account in Luxembourg, and funds will continue to be released on a monthly basis.